Bank of England Keeps Interest Rates Steady
October 08 2015 - 08:00AM
Dow Jones News
LONDON—The Bank of England kept its benchmark interest rate
steady Thursday, amid signs of a slowdown both at home and
overseas.
The BOE said that a majority of officials on the nine-member
rate-setting Monetary Policy Committee voted to keep the central
bank's main interest rate at 0.5% at their meeting ended Oct. 6,
judging that the current policy stance would help fuel growth and
lift annual inflation back toward its 2% target over the next two
years.
Annual inflation was zero in August, and the BOE said it expects
price-growth to pick up in 2016 but remain below 1% until the
spring.
Minutes of the committee's deliberations showed that eight
members of the nine-member panel voted to leave the BOE's benchmark
interest rate at 0.5%, with Ian McCafferty the sole dissenter.
Mr. McCafferty argued for an immediate rise in the BOE's
benchmark rate to 0.75% to keep future inflation in check.
The panel voted unanimously to maintain the size of the BOE's
bond portfolio, amassed during a three-year stimulus push known as
quantitative easing, at £ 375 billion ($571 billion).
The central bank's decision comes amid signs the British economy
slowed in the third quarter after a healthy expansion in the first
half of the year.
A closely watched gauge of activity in the services sector,
which accounts for more than three-quarters of annual output,
weakened in August to its lowest level since 2013.
U.K. manufacturing, meanwhile, has been hit by a strong pound
and a broader global slowdown, both of which have hurt demand for
British goods and services overseas.
According to the minutes, officials concluded the data are
consistent with a "gentle deceleration" in U.K. growth as the
recovery matures, but that overall the domestic economy remains
resilient.
BOE Governor Mark Carney has said he believes that officials
will get a better sense of when to begin raising interest rates for
the first time since 2007 around the turn of the year.
Officials' most recent forecasts suggest the BOE will start
gently increasing borrowing costs in the first half of next year.
Yet investors in financial markets are doubtful the central bank
will move so soon.
The interest rate on derivatives that hug the BOE's benchmark
suggest Mr. Carney and his colleagues won't begin tightening policy
until the end of 2016, or even early 2017.
Similar doubts surround the timing of a likely move on rates by
the Federal Reserve, even though Fed Chairwoman Janet Yellen said
in a speech last month that she expects the U.S. central bank will
begin to raise short-term interest rates later this year.
The minutes published Thursday also record officials' concern
about a possible slowdown overseas and its potential impact on the
U.K.
The International Monetary Fund on Tuesday downgraded its growth
estimates for this year and next, warning that a downturn in China
and other emerging markets has heightened the risk the global
economy will end up in recession in 2016.
The MPC noted in October that "a deterioration in the global
demand environment would slow the pace of expansion" in the U.K.
further, according to the minutes.
Write to Jason Douglas at jason.douglas@wsj.com and Jon Sindreu
at jon.sindreu@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 08, 2015 07:45 ET (11:45 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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